Consider the Inter-temporal Model with twotime periods, t=0 and t=1.Home is a small open economy that canborrow and lend in the first period at theworld real interest rate of 5%.In the first period, output is Yo = 100 and inthe second period Y1 = 100. The countrywants to smooth consumption as much aspossible.The country ended period t=-1 with positiveexternal wealth, W-1 = 50.What is the value of aggregate consumptionin period 0 and 1?

Aggregate intake refers to the entire amount of goods and offerings fed on by using families within…

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ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

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Question

Consider the Inter-temporal Model with two
time periods, t=0 and t=1.
Home is a small open economy that can
borrow and lend in the first period at the
world real interest rate of 5%.
In the first period, output is Yo = 100 and in
the second period Y1 = 100. The country
wants to smooth consumption as much as
possible.
The country ended period t=-1 with positive
external wealth, W-1 = 50.
What is the value of aggregate consumption
in period 0 and 1?

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